Seven years after losing the tax advantage that propelled it to the position of India’s second-largest capital source, Mauritius is aiming for a comeback, this time through the GIFT City route. The island nation’s International Financial Centre (IFC) is considering establishing an office in Gujarat International Finance Tec-City (GIFT City), a senior Mauritian minister has revealed. A sizable delegation from Mauritius currently in India will engage with officials of the International Financial Services Centres Authority (IFSCA) to explore areas of cooperation, including the alignment of regulations between the two entities. This would simplify compliance and tax rules for GIFT City-based entities operating in Mauritius.
This collaboration is envisioned as a mutually beneficial arrangement. “It will be a win-win situation. This is the type of relationship we want to establish with GIFT City,” stated Soomilduth Bholah, the Mauritian Minister for Financial Services and Good Governance, leading the delegation on his second visit to India this year. A partnership could enable entities in both jurisdictions to transfer capital between them seamlessly.
Attracting capital from India to Africa is a key objective of the GIFT City collaboration, Bholah highlighted. The island nation is also looking to draw in services such as financing for immovable assets in Africa, intellectual property management, and reinsurance from India. These new business avenues aim to offset the decline in direct investment from Mauritius to India.
In 2017, India and Mauritius discontinued a tax provision that exempted Mauritian entities from capital gains taxes in India. Around the same period, India introduced General Anti-Avoidance Rules, obligating investors to justify their presence in tax-favorable jurisdictions like Mauritius beyond tax benefits. These developments led to a significant drop in foreign direct investment (FDI) from Mauritius, which had become a hub for financial flows from a previously agriculture-and-tourism-focused economy.
Financial services now constitute more than one-eighth of the Mauritian economy, based on data from the FSC. India-bound investments account for over half of the global business capital flowing through Mauritius.
Mauritius has recently introduced a variable capital company (VCC) structure for investment vehicles, a model already gaining popularity in Singapore. This structure allows investors to create multiple sub-funds under a single umbrella entity. The sub-funds maintain individual legal and tax identities and are not subject to cross-liabilities. This reduces compliance and cost burdens on investors, eliminating the need for separate registrations for each new fund.
Mauritius is now aiming to extend the VCC structure to encompass wealth management and family offices. The primary beneficiaries will be those seeking investment opportunities in Africa. As a member of the African Union, Mauritius leverages bilateral agreements with African nations, offering advantages to investors. The VCC structure will significantly enhance Mauritius’ appeal as an investment holding jurisdiction, according to Punit Shah, partner at Dhruva Advisors, who advises domestic and multinational companies on international transactions and taxation. “It will boost Mauritius’ comparative position vis-a-vis Singapore for foreign direct investment (FDI) into India, especially considering its cost competitiveness and the fact that both jurisdictions are almost at par so far as tax treatment of Indian capital gains is concerned,” he explained. “Mauritius will also become attractive for floating regulated fund structures with differentiated returns, for outbound investments from India.”
Mauritius is also working to improve its reputation, having been perceived as a tax haven facilitating opaque financial structures used for money laundering. In 2020, the Financial Action Task Force, an intergovernmental organization dedicated to combating money laundering, placed Mauritius on its grey list due to insufficient fiscal controls and oversight. This prompted heightened scrutiny of investments channeled through Mauritius. The country swiftly revised its regulations and compliance measures, exiting the grey list in 2021. Today, Bholah asserts that Mauritius is devoid of shell companies. Regulators maintain records of the ultimate beneficial owner for every company registered within the country.
“Considering that Mauritius has traditionally been used, from a tax-efficiency perspective, for making investments into Africa, it could now be also used as a gateway for Indian investors and fund managers for making investments into Africa,” Shah of Dhruva Advisors noted. “We know the pain that we have gone through a few years back,” Bholah acknowledged, adding that the country is proactively implementing robust regulatory standards.
